The Game with Alex Hormozi - Cost of Retention Broken Down 🔥🔥🔥 (Dollars & Cents...) Send to yo' Ops Manager | Ep 113

Episode Date: March 14, 2019

People are paying for accountability. Today, Alex (@AlexHormozi) discusses the cost of retaining gym customers and retention strategies to triple lifetime value, including reaching out to customers who need to show up, sending handwritten cards, and contacting all customers twice a month.Welcome to The Game w/Alex Hormozi, hosted by entrepreneur, founder, investor, author, public speaker, and content creator Alex Hormozi. On this podcast you’ll hear how to get more customers, make more profit per customer, how to keep them longer, and the many failures and lessons Alex has learned on his path from $100M to $1B in net worth.Timestamps:(0:27) - The cost of retaining customers.(2:25) - Retention strategies to triple lifetime value of customers.(7:13) - The benefits of investing in customer retention.(8:36) - The cost of retention and how to foster relationships.Follow Alex Hormozi’s Socials:LinkedIn | Instagram | Facebook | YouTube | Twitter | Acquisition

What is going on, everyone? Happy Thursday. I hope you guys are having an amazing, amazing Thursday, a terrific Thursday, a tremendous Thursday. So I wanted to break down the cost of retention. So I talk a lot about cost of acquisition, being able to out spend your competitors, being able to make money in the acquisition, et cetera, so that you can market your ass off. But the other side of the equation, a lot of people don't want to break down. And I want to break this down, dollars and cents for you, the cost of retaining a customer. So if you look at how much it like so the average business what's up Steve the average gym has a 10% month over month turn right so they're losing 10% of their EFTs month over month

Now there's two numbers that I want to tell you one is that the average lifetime value of a gym EFT is 10 months 10 months According to like mind body and What's the other one Wadify Zemplar those ones they release benchmark reports which I always like to go go through. The difficulty is that most gyms, most CrossFit's boot camp summer private facilities, are usually in that 50, 80, 100 max type clients. And most of those people are OGs who have been grandfathered in. They're still being operated by the owner. So they're usually not owner. Like, the owner is not just owning. They're usually owner operating, which skews the numbers, right? So that's what the average number is most of the time because most of those people are owner operating, whereas most or at least a lot of people watching this have transitioned to at least mostly owning and are definitely not doing any sessions, things like that.

And so I want to break down the actual cost of retaining customers, EFTs, if you were, I've transitioned to ownership, right? And so it happens a lot of times is that you have this base of EFTs, the OGs, your original gangsters, your clients that you grandfathered in at $99 a month, who you love, they wear. the bumper stickers, they take up all your time. You love them, but they pay less than everyone else. And then the top, you know, the 25% that's at the top of your EFT continues to churn, that you brought it off of marketing, et cetera. So how do you transition from this kind of bifurcated gym where you have your OGs and then you have these transient people that are coming on average for only three-ish, three to four months? A lot of people who are on here already know about that because it's like, Why is it three or four months?

So the actual average where people are coming in off Cold Traffic marketing is much less. And I don't think it's because of the fulfillment. I think it's because of the fact that the type of owner who is doing that has already transitioned to ownership and it's no longer operating the business. So let's get to the nitty gritty. If that type of gym, which is the majority of people are on here, has a 10% month-over-month churn for clients,

then if we were to implement retention strategies and we were to cut that to 3% month-over-month churn or less, what does that actually mean? So if you go from 10% to 3%, then it means that you're 3.3xing your lifetime value of a customer, more than tripling your lifetime value by going from 10% to 3%.

So the question is, how much does it cost to do that? Like, we know how most people, at least who work with us, know exactly down to the penny how much it costs to acquire a customer, but don't know how much it costs to retain a customer, right? And so if we were to break this down, let's look at the actions that you need to do to retain a customer.

First, you need to make sure that you're reaching out to every single one of them by Wednesday of that week to make sure that they've actually showed up. You're not going to do this to the majority of your people because most of them are hopefully showing up. So it's going to be a majority of people. Let's say it's 20% of them. That would still be huge. But let's say 20% of your customers would be enormous. Don't show up by Wednesday. Okay.

That's one. Second is that you're reaching out to all of your customers on a 14-day basis. So basically twice per month you should be reaching out of them just to say hello, check in on them. you know, pulse check, just make sure they're alive and well and tracking their stats, etc. Third, is you should be making sure that you're writing them a hand with your card once a month, either that's inviting them to a member event or just saying, I love you, or saying, hey, if you can give this to a friend of yours, we'll give them a free month,

blah, blah, blah, et cetera. So if we were just to look at those three things, which do measurably reduce churn from 10%, usually for most people who just do those three things, cuts them sub three. So if you go from 10% to 3%, what is the cost of do? doing those or implementing those tactics, what's the cost per member per month, all right? So if you look at it dollars per hour, the actual, so the actual envelope and the handwritten card,

et cetera, costs about $2 all in, including like the man hour, like the man hours that it costs, it takes like a minute and a half to actually write a card. If you're doing, if you take 60 minutes, you're write 20 cards, right? So, and you're paying someone 15 bucks an hour, like the, it works out to about $2 per card,

including the stamp and the paper, everything okay so you got two dollars there and then um per customer let's say the remaining eight dollars that you have would be another 45 minutes or 40 minutes or so of one trainer's time per month okay so uh that like let's say the 20 minutes is pushed towards the reach out that you have on wednesday and reaching out texting back and forth uh twice throughout the month okay so that means going to cost you 10 dollars and hard costs so retain a customer that's an eFT now Now, if it cost you $40, let's say because the average person, if you weren't doing these things, would stay three to four months, right?

So it's going to cost you $40 to do that for the first four months. But then if it triples your lifetime value, right, you go from four months to 14 months, right, of life to 3.3 or 13 months. Let's say 13 months. Mosy Nation, real quick, if you are a business owner that has a big old business and wants to get to a much bigger business, going to $50, $100 million plus. We would love to talk to you.

And if you like that, we would like to hear more about it, go to acquisition.com, you can apply anywhere on the page and talk to one of our team and see if we can help you get there. So to triple that, you get 13 more months

by spending $10 extra per month. So version one is you spend nothing on retention and you make, let's say, 150 times four, which is $600, okay? Version two, you spend $10 per month, including month one, month, two, month, three, month four. So that's an additional cost that you didn't have the first time, and you're getting the same month's revenue that you would have anyways.

So in those months, you're technically losing money. So I just want to be clear about that. Okay. But if you get an additional 10 months on the back end at $150 a month, right? And we're saying on average, right? Then that means you're making an extra $1,500 for an extra $100 of labor. So you got $40 on the front and then 10 months at $10 again. So $140 all in adds an additional $1,500 on the back end.

Okay. So you get a 10 to one return forever, always. You never have to worry about what app platform you're spending on. You don't have to worry about your headlines, you're converting, or whatever. You don't have to do any of that stuff, but you're guaranteed a 10 to one return on your dollars in lifetime value of a customer. So do you want to do that? I think it's a very good use of your time and money. So cost of acquisition, how much it cost to get someone in, cost of retention, how much does it cost us to keep them paying us?

Okay. And so if you were to simply implement those things and say, I'm going to mentally allocate $10 per month to retain these people. So let's say your EFT is $150. You're going to say right off the bat, 10 of that goes to keeping them. That's it. So if you need to mentally shift in terms of how you see the money that comes in, 10 of those dollars, if you need to add $10 for it, whatever, it doesn't matter. at a $30 sign-up fee and then that covers your first three months. Whatever it takes for you to wrap your head around being okay with this,

you need to preach this to your trainers because ultimately, if we claim that we're trying to help people, if that's what we claim, right, then we need to help them stick with it. And so when we help people stick with the commitment that they're trying to make, we do a couple things. One, we're providing actual value because the person is actually sticking with the commitment, which is the hardest part.

our fitness programs, our nutrition programs, the coaching, like the actual sessions, none of that is that valuable. I'm going to be super real with you. It's not. Why? Because you can get it at 24 hour fitness for $20, $9 a month. You can go and get group classes for less and have a better facility, better parking, everything, right?

What is the main thing people are actually paying for? They're paying for accountability. They're paying for you actually keeping them on track. Most people are more than happy to pay for things that are positive habits. if they use them. No one has a problem paying for a gym membership, even at $200 a month, as long as they are using it. No one quits when they're using something, virtually ever, right? I mean, unless some catastrophic, whatever, government shut down. You get my point. But most times, that's not the case. Right. And so our objective is how can I get this person

to stick with the commitment that they started with? Right. It's much easier to quit a membership than it is to quit a relationship. And so the goal of these, tactics that I just outlined is to build and foster a relationship and communication with these people so you're in tight communication so that they will continue to stay with you, right? And they stay with you because they're continuing to work out and get healthy, which is the promise that we made them when they walked in the door and they gave us money. So how much does it cost? Cost $10 a month, $15 a month top to retain a customer.

Okay, cool. So you're giving 10% of your gross revenue to 10x what they're going to pay. you. I think that makes sense. Sorry, 3.3x, excuse me, what they're going to pay you. I think that that makes a whole lot of sense. So anyways, I hope that makes sense for all of you guys. Cost of retention broken down. If you're not doing that, you should. Because ultimately, if you don't, you'll get put out of business by someone who is. So lots of love. Have an amazing, terrific, tremendous, fantabulous Thursday. Talk to you soon. Bye.